Beware Of Advertising’s ‘Innovation Tax’

“Data-Driven Thinking" is written by members of the media community and contains fresh ideas on the digital revolution in media.

Today’s column is written by Ryan McConville, senior vice president of business development and partnerships at Kargo.

Programmatic advertising has slowly but steadily taken hold of nearly the entire digital marketing universe. And while by now you’ve heard of it, tried to understand it and even dabbled in it, brands, publishers and everyone in between continue to debate the true value of advertising automation and its projected influence over the future of media buying.

Agencies, ad tech companies and other parties on the demand side talk about the benefits of machine-driven decision-making, hyperefficiency and data targeting on steroids. Those on the supply side remain concerned about a variety of issues, including data leakage, lower CPMs and slimmer margins due to technology middlemen.

Many have taken to calling this latter phenomenon the “technology tax” – the whittling away of every dollar spent on advertising by a new programmatic supply chain stuffed with media agencies, trading desks, DMPs, DSPs, exchanges and SSPs, all of which take a cut. By some estimates, programmatic parties collectively take 70 cents of every dollar spent by marketers, leaving precious few pennies for the actual media and the publisher.

While the technology tax is fairly well known, there is another “tax” at work today that is hampering the programmatic environment and could have even bigger consequences if it isn’t fixed. It’s the “innovation tax.”

In practical terms, the innovation tax refers to the limitation of marketers to buy and publishers to sell hypercreative, nonstandardized ad experiences through programmatic pipes. This tax is particularly insidious to publishers because most big media companies rely heavily on creative ideation to make their money. These organizations invest significant dollars in building world-class marketing and design teams whose job it is to outwit and out-ideate their rivals by offering ideas that push the envelope. Programmatic infrastructure is a direct blow to this competitive arena. Programmatic pipes require everything to be essentially the same. Creatives need to be “standardized” in order to work across so many interlocking systems.

Some call this a moot argument. They say that programmatic is not supposed to handle that type of stuff and that it’s the “big,” innovative ideas that will remain “manual.” Fair enough. But if predictions that 80% of advertising will be bought programmatically by 2017 are true, as predicted by Magna Global, does that mean that 80% of what publishers sell will be relegated to “small” standardized ideas? How does one publisher outduel another for brand dollars once 80% of what they are selling is programmatic?

The answer could be scary: Without creative differentiation, publishers will sell 80% of their goods using commoditized ad types and commoditized third-party data. And once everyone’s selling essentially the same things, standardization will force them to compete in the one area that they really don’t want to: price.

Guaranteed, data-verified audiences at rock-bottom commodity prices might seem like a good thing for marketers, but not at the cost of sacrificing creativity and innovation. Advertisers shouldn’t throw out the creative baby with the programmatic bathwater. For this reason, tech companies should spend more time thinking about how innovation and creativity can be worked into the new systems that everyone is rushing to build.

Some ad tech companies say not to worry, that the creative piece will come later – when they get to it. Given the complex intertwining of so many different ad tech pipes, tools that allow for more innovation within the programmatic stack should be blueprinted sooner rather than later. It is better to put in the plumbing before erecting the drywall.

Just as vigorously as brands, publishers and vendors look to capitalize on the benefits of programmatic systems, we must not neglect how critical innovation is to the way advertising works and how it evolves, stays fresh and uses novelty and the element of surprise to drive business results for all parties involved.

The development of technologies and platforms that help unlock originality and allow for innovation in digital advertising should be prioritized at the same level as those that improve efficiency and targeting.

1 Comment

Ryan, great article. I think it will certainly get people thinking and talking.

Creativity is the core of an advertising agency. It is the agency that needs to come up or make sense of ideas that will capture an audience. Advertisers are in search of remaining in the public’s face via these creative ideas. Now that ad tech has significantly evolved and has the capabilities of granularly targeting users, the agency has to adapt to this new technology, which it shows signs of doing.

Right now, programmatic may seem to be standardized, but eventually it will venture outside of the “one-size-fits-all” sphere. Agencies will need to become more diverse when pitching ideas to an advertiser. Logic would be that advertisers begin seeking an agency that can offer diverse creative pieces that cater to specific segments they want to target via programmatic delivery.

I’m sure some individual(s) is thinking about puzzling this together. Hopefully programmatic advertising pushes agencies to become more creative and further embrace this ad tech, meaning the creative baby will continue and like to bathe in programmatic waters.